July 09, 2014

In yesterday's report titled "Samsung Profits Plummet 24% on Slow Smartphone Sales" we noted that Samsung stated that a market slowdown and heightened competition had resulted in a build-up of unsold smartphones in China and Europe. Due to the result of Samsung's Galaxy S5 inventory, we learn today that Taiwan's component makers now claiming that Samsung has drastically cut back on S5 component orders. In additon, Samsung's earnings shock has brought out the knives from thier local critics that angrily take a few stabs as Samsung's conceit and blind management.

According to DigiTimes, China's Economic Daily News (EDN) is reporting that with Samsung Electronics' Galaxy smartphone sales having been seriously impacted recently, Taiwan component makers' orders for the Galaxy S5 have greatly reduced to only 15 million units for the third quarter, down from 21 million in the second, while the Galaxy S4's orders also dropped from six million units to five million."

The Korean press today ripped into Samsung for their poor quarterly results. One key report this morning notes that "as the earning shock became a reality, its management failure to manage the crisis that the company was aware of is on the chopping blocks. The consensus is that Samsung Electronics (SEC) Q2 earning shock is attributed to the fact that SEC's ability to accurately predict the market and manage crisis was not exercised properly. In particular, the IT & Mobile Communications (IM) Division, the source of the earning shock anticipated the deterioration of marketability, but failed to come up with appropriate countermeasures or renovation plans.SEC's market forecast, which has had a reputation for accuracy, blatantly went wide of the mark."

The report further noted that Samsung "failed to respond appropriately, and could not do anything about its worsening performance. It means that SEC failed to prepare a 'rival horse' against competitive products that can captivate customers.The Galaxy S5 sales failing to meet expectations is the proof. Excessive confidence in the 'Galaxy S' brand, inadequate analysis of competitors and failure to understand consumer requirements resulted in the worse performance of Q2."

Lee Seung-woo, an IBK Securities researcher weighed in by stating that "When it comes to mid-to low-priced products, an increasing number of Chinese consumers think that competitive products like Xiaomi are not inferior at all."

An industry insider sarcastically said that at some point out that excessive confidence blunted the ability to make accurate predictions. It means that SEC thought all products with the Galaxy S mark would sell anywhere and resulted in organizational conceit that invited the disaster.

And lastly, Professor Chang Se-jin, Graduate School of Business Administration of South Korea's KAIST weighed in by stating that "One of the strengths of SEC is 'speed,' i.e. the ability to seize an opportunity faster than others."

Yet what Se-jin failed to acknowledge of course is that "seizing an opportunity" usually involves Samsung stealing and copying the innovation of others like Apple. When there's an innovative lull in the market, like there is at present, Samsung really doesn't know what to do.

Though in the end there's hope. I'm sure that Samsung is looking forward to Apple's string of new product announcements coming later this fall like the rest of us. It's certain to cheer up Samsung's management and get their copycat machine revved up with copycat innovations in time for the Mobile World Congress event to be held in early 2015. It's just the nature of this zombie. They just can't help themselves.

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